Woolies tools up for hardware foray

When
Woolworths
chief executive
Michael Luscombe
claimed last year there was room for another major player in the $24 billion home improvement market, it was more than wishful thinking.

The market is growing at almost twice the rate of gross domestic product and may be worth more than $40 billion a year, according to retail consultant Geoff Dart.

Market leader Bunnings accounts for almost $7 billion of sales, Mitre 10 for $1.7 billion and Danks for $600 million, leaving plenty of scope for Woolworths to wrest sales from small chains and stand-alone stores.

“The market has changed," says Dart, from advisory firm Moore Stephens. “As soon as Bunnings started to go into kitchens, window furnishings and light fittings, that expanded the market."

Dart says Bunnings and Woolworths now “compete with Harvey Norman, Reece, Myer, David Jones, Lawrence and Hanson, Ikea, Freedom Furniture and Retravision – so the whole landscape changes once a retailer attaches new categories".

The key for Woolworths and its joint-venture partner Lowe’s – they plan to build 150 big-box home-improvement stores over the next five years – is differentiation.

Luscombe, a self-confessed hardware “nut’’, knows that replicating the blokey Bunnings’ format, with its concrete floors, open ceilings and metal shelving, would be a recipe for disaster.

Wesfarmers
’ Bunnings warehouse concept is loosely based on that of Home Depot, the largest hardware retailer in the United States. More recently, Bunnings has been inspired by European DIY market leader, Hornbach.

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Luscombe’s home-improvement vision will combine elements of Bunnings and Lowe’s but also Harvey Norman, Ikea and Domayne, with wider aisles, superior fit-out, attractive displays of furniture and home-decorating products and high levels of customer service.

The aim is to attract female as well as male shoppers.

“I know that in Australia the guys are king of the castle, except in my home – I get to choose the lumber, the nails and the hammer but when it comes to the lighting, the carpet, the kitchen, the bathroom, the paint, the garden, the roofing . . . there’s another boss in our household who doesn’t happen to be the male," Luscombe says.

“When you look at Lowe’s, they understand who makes decisions around home improvement."

Dart agrees there’s a gap in the market but says there’s a danger that if Woolworths and Lowe’s move too up-market, they may alienate potential customers, such as those seeking value and range over service and style.

“It’s not whether there’s a gap in the market, it’s whether there’s a market in the gap," Dart says.

“Bunnings has 14 per cent of the market and you could say there’s another 86 per cent that’s up for grabs, but the way you go about that, the format you have, the position of the stores, the layout of the stores, is very important."

Higher service levels and fit-out also mean higher costs.

“If [the stores] are going to be around 12,000 to 13,000 square metres, which is about 20-30 per cent larger than an average Bunnings, with fewer SKUs (stock- keeping units) the gross margin is going to have be about 20 per cent higher to deliver the same return on that space," Dart says.

This is one of the reasons Bunnings chief
John Gillam
is unperturbed by Woolworths’ and Lowe’s entry into the sector.

While Bunnings has been adding kitchens, flooring, lighting, plumbing and cooking appliances to its range and accelerating new store roll-out, it has no intention of increasing its costs by going more up-market or giving its stores an expensive makeover.

“To deliver value you can’t add costs back into your business and be very aggressive on price," Gillam says. He also doubts consumers are ready to buy fridges and washing machines from hardware stores.